Cost of interest only mortgage

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noel123ie

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Hi all

I have a friend who is considering going interest only for a period. Is there anywhere online where you can enter amount of mortgage etc and get cost per month of mortgage while interest only and more importantly how mush it will cost them over the lifetime when they go back to full repayments.

Ive read Brendans piece on here and is brill I must say!

She is on an AIB fixed rate, the complicating factor is that she will hopefully clear all mortgage in next number of years due to property sale of another house she has a share in. Will she have to pay extra on mortgage when she clears this due to having gone interest only for a period?

Also can she clear mortgage while on interest only and also will there be a cost to her from bank by clearing mortgage that is on a fixed rate?

Thanks all
Noel
 
noel123ie said:
Hi all

I have a friend who is considering going interest only for a period. Is there anywhere online where you can enter amount of mortgage etc and get cost per month of mortgage while interest only and more importantly how mush it will cost them over the lifetime when they go back to full repayments.
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I don't know if Karl Jeacle's calculator caters for interest only periods so I've asked him about this.
Will she have to pay extra on mortgage when she clears this due to having gone interest only for a period?
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Well going interest only for a period will always cost more than continuing to make the originally scheduled capital plus interest repayments since during the interest only period the capital balance outstanding remains static and racks up more interest charges than when it is gradually decreasing.
Also can she clear mortgage while on interest only and also will there be a cost to her from bank by clearing mortgage that is on a fixed rate?
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You should be able to clear a mortgage any time. Almost certainly the fixed rate agreement will include a fixed rate breakage penalty but if it does then she should not be afraid to try to negotiate this down/away with the lender. Nothing ventured...

Update: found this calculator but haven't tried it out - just in case it helps at all...
 
Karl kindly got back to me with this suggestion - hope it helps:

If you click on the "Interest Rates" button at the bottom of the calculator, there is a place to enter a start and end month for interest-only payments. This might be of help.

Note that the values in "Fixed Loan Data" won't change as they apply to the conventional mortgage, but the values shown when the Summary button is clicked will update to show the extra interest paid.
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Hi Noel

If you hire a car for a week, and then you keep it an extra two days, you will have to pay another two days' rent.

It's the same for mortgages. You should judge the cost of a mortgage by the annual cost. Not by the total interest paid over the lenght of the mortgage.

Interest only is very easy to calculate - even if you don't have a calculator or slide rule handy.

Multiply the amount remaining by the interest rate and divide by 12.

100,000 @ 5% = €5,000 per year

5,000 / 12 = €416 per month.
 
You might also want to factor in mortgage interest tax relief to get the "net" cost.
 
noel123ie said:
Please advise how above will affect repayments
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You subtract the relevant relief amount from the "gross" interest bill to get the "net" interest payment.

http://www.revenue.ie/en/tax/it/leaflets/tax-relief-source-mortgage-interest-relief.html
http://www.revenue.ie/en/tax/it/reliefs/tax-relief-source-mortgage-rates.html

Some lenders just charge the "net" interest amount, others (e.g. BoI for one) charge the full amount and then credit back the mortgage interest relief to the account from which mortgage repayments are paid. The end result is the same but the latter approach may require you to be able to cover the direct debit/standing order for the full amount temporarily.
 
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